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Updated: Feb 4, 2026

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Political cycles: Beyond rational expectations.

Frank Bohn1

  • 1Nijmegen Centre for Economics (NiCE), Institute for Management Research (IMR), Radboud University, Nijmegen, The Netherlands.

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|October 12, 2018
PubMed
Summary

Political budget manipulations can boost re-election chances by exploiting voters

Area of Science:

  • Political Science
  • Economics
  • Public Finance

Background:

  • Existing rational expectations models fail to explain the effectiveness of political budget manipulations in increasing re-election chances.
  • Political budget cycles are observed in specific contexts, particularly in countries with economic or political intransparency.

Purpose of the Study:

  • To develop a theoretical explanation for the electoral effects of political budget manipulations by incorporating unsophisticated voters into an opportunistic political cycle model.
  • To provide a framework that reconciles empirical findings on political budget cycles with theoretical expectations.

Main Methods:

  • Development of an opportunistic political cycle model that includes unsophisticated voters who may suspect government deception.
  • Analysis of how voter suspicion and government attempts to appear competent influence fiscal policy decisions around elections.

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Main Results:

  • The inclusion of unsophisticated voters explains empirically observed electoral effects of political budget manipulations, which are otherwise fruitless in equilibrium.
  • Governments increase budget manipulations to overcome voter skepticism and enhance perceived competence, leading to political budget cycles in opaque environments.
  • Political opportunism unintentionally generates countercyclical policy effects in election years, potentially mitigating procyclicality in developing economies.

Conclusions:

  • Unsophisticated voters' susceptibility to perceived government competence drives the effectiveness of political budget manipulations.
  • The model explains the prevalence of political budget cycles in developing countries and new democracies due to higher levels of intransparency.
  • Findings offer insights into political forecast and budget cycles in US states and have broader implications for fiscal rules in European countries.